Due to financial and risk disputes, Chaos Labs left the road
Chaos Labs has parted ways with the Aave ecosystem after serving as the crypto lending protocol's primary risk service provider for three years, citing budget disputes and disagreements over how Aave should manage risk.
“This decision was not made in haste,” Chaos Labs founder Omar Goldberg said in a post to X on Monday. “We worked in good faith with the DAO contributors. Ave Labs was professional and supported us in increasing our budget to $5m to keep us. However, participation is not showing how we believe risk should be managed.”
According to Ave Labs CEO Stany Kulekov, Chaos did not leave on bad terms, but Chaos made a proposal to become the sole risk provider and exclude other partners — a deal Aave was unwilling to accept.
Chaos has played a key role in Aave's back-end infrastructure since November 2022, from sourcing loans and managing risk in Aave's V2 and V3 markets.
The threat has been a major talking point in the Ave community since March 12, when a user lost $50 million in business when he interacted with an Aave interface. Next week, Aave said it will introduce the “Aave Shield” protection feature to protect users from high-risk trading.
Regarding the release of Chaos, Goldberg said there was a growing disagreement on how parties should manage risk. Some of Aave's contributors have pointed out that the workload has increased and they've left, while also arguing that the expanded functionality of Aave V4 introduced additional operational and legal risks that fell squarely on Chaos' shoulders.
“While Aave Labs is optimistic about a rapid migration to V4, history shows that these transitions take months and even years,” said Goldberg. “Both systems must be operated and managed simultaneously until V4 fully absorbs V3's markets and liquidity. The workload during the transition will not be halved. It will be doubled.”
Assessing the risk of protocol failure, Goldberg said, “There is no regulatory framework, no safe harbor, and no law to answer the question of what a risk manager or custodian owes if there is a risk of protocol failure. If things work, the work is invisible, if things go wrong, it's not the fault.”
As such, “we're moving away from a $5 million engagement,” Goldberg said.
Chaos Aave wanted Lamarisk, Chainlink: Kulekov to rise.
Ave Labs CEO Stany Kulekov told a slightly different story, stating that Chaos wants to be the only risk manager and uses price oracles instead of Chainlink.
Following that request, Ave forced LaMarcus, another risk protocol partner, to abandon the two-layer economic risk model.
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Kulekov added that Ave declined to integrate Chaos-built price oracles, citing Ave's “track record” with Chainlink services, saying, “Users are currently more comfortable with scale.”
He also said that Chaos is already “reducing risk advisory services” and that Ave has offered to double his fee to $5 million to keep the fee.
Cointelegraph has reached out to Chaos Labs for comment.
Kulekov noted that the rise of Chaos did not disrupt the Aave protocol, smart contracts, token lists, or network integrations.
Moving forward, Aave said it will “work closely with LlamaRisk to ensure a smooth transition” and continue its two-layer economic risk model.
The uproar comes amid a protocol-wide dispute over how much funding and revenue control Aave Labs should receive from Aave, a decentralized independent organization.
Despite internal issues, Ave passed the $1 trillion mark in accumulated loans at the end of February, marking a first in the DeFi industry.
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